IAS Daily Dose: Current Affairs 2013 for UPSC IAS Exam - S&P: India risks losing investment grade rating

Last Updated: May 22, 2013 at 11:32:16

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Current Affairs Notes for PT 2013

S&P pointed to the operational roles of Congress president Sonia Gandhi and "unelected" Manmohan Singh as Prime Minister for the current economic impasse and threatened to downgrade India's sovereign credit rating to ‘speculative' from the lowest notch of 'investment' grade.

Presently India's sovereign rating is BBB-, the lowest investment grade rating and S&P had revised the rating outlook to negative from stable in April 2012, because of India’s lower GDP growth prospects and the risk that its external liquidity and fiscal flexibility may erode. The negative outlook also reflects the risk that Indian authorities may be unable to react to economic shocks quickly and decisively enough to maintain the country’s current credit worthiness.

The report examines the forecasts for economic growth, and the possible effects on business confidence and the government’s commitment to economic reform.

It also suggests that despite the recent problems, the Indian economy remains in much better shape to withstand this period of heightened global uncertainty than it was in the early 1990s, when it suffered a balance-of-payments crisis.

Present Indian Economic Scenario

• India's economic growth fell to a nine-year low of 5.3% in the January-March quarter as a tight monetary policy to control inflation hurt factory output.

• The budget deficit widened to 5.75% of gross domestic product in the fiscal year ended March 31, sharply higher than the government's target of 4.6%, due mainly to fuel and fertilizer subsidies.